WASHINGTON - Iraq faces regulatory,administrative and political barriers that will prevent it from majoroil production expansion for at least five years, David Fyfe, the headof the International Energy Agency’s Oil Industry and Markets Division,said on Tuesday. Iraqon Tuesday launched its first major energy auction since the 2003-ledinvasion, aimed at ramping up the nation’s oil production.

Fyfecautioned that the rules governing oil deals reached in Iraq are notstable and that legislative red tape may hinder development.

“Wetook a very conservative view with regard to Iraq, not because of anymisgivings about physical (resources), because I think everyone acceptsthat the resources are there,” Fyfe said. “We were just struggling tosee in the short term a regulatory framework that was going to bringsubstantial new volume of oil on stream quickly.”

Speakingat an event presenting the mid-term oil outlook by the energy adviserto 28 developed countries, Fyfe said once those structural barriers areovercome Iraq will be able to produce six million barrels of oil perday, but that will not happen in five years.

Alsoat the event sponsored by the Center for Strategic and Studies, IEAexecutive director Nobuo Tanaka said increased oil production would dolittle counter rising oil prices.

Optimismthat a potential economic turnaround could lift flagging oil demand hassent crude up from below $40 a barrel in February to over $70 a barrelthis week. On Tuesday, prices dropped more than 3 per cent, below the$70 mark after grim US consumer confidence data.

“Butthis (price spike) cannot be simply solved by more production, becauseit is much more dependent on expectation of the economic recovery,” hesaid.

Tanakasaid speculation is amplifying oil price volatility, but he still urgedthe Organisation of the Petroleum Exporting Countries to be mindful ofwhat is happening in the market and to act quickly if more productionis needed, however.

Althoughoil prices have been climbing, they are still far below their peak near$150 a barrel in July last year. The fall in prices has caused somecompanies to scale back on investments.

Inparticular, Tanaka expressed concern about the development ofunconventional sources of oil and natural gas, including oil shale andCanadian oil sands, but he added that many oil fields could bedeveloped at current prices.